L. L. Andreatta & Associates Livio L. Andreatta, President Advanced Chartered Benefit Consultant State Public Relations Officer & National Public Affairs.

L. L. Andreatta & AssociatesLivio L. Andreatta, President

Advanced Chartered Benefit Consultant State Public Relations Officer & National Public Affairs Officer for

the National Association of Alternative Benefits Consultants (NAABC)

Special Consultant: Corporate Benefit Consultants Certified Senior Advisor (CSA) Financial Consultant Over 35 years experience in Group and Individual insurance and

corporate benefit plans. Member: Chicago Southland Chamber of Commerce

Of those covered by group health plans, 50% will spend less that $1,000 per year on their health care.

25% of those will spend NOTHING at all!

8% of those covered spend 70% of all the dollars spent on health care.

Employees pay for only about 20% of their health care expenses.

BASIC FACTS

20-30% of your premium is cost shifting and goes to cover Medicare and Medicaid due to inadequate government reimbursement.

Another 5-7% of premium cost shifting goes to cover the care of the uninsured at hospital emergency rooms.

HIDDEN TAXES

CONSUMER EDUCATION

In a recent study...

50% of respondents were uncertain how much they paid for their monthly health insurance premium.

55% were uncertain about their annual deductibles.

77% reported that they were less than sure of what the terminology used in their health insurance policy actually means.

80% do not know what PPO stands for.

Consumer Driven Health Plans

Individual & Group

Can we keep funding Health Care the way we are doing it now?

Six straight years of double-digit increases, with more projected.

Vision is seeing the future now and acting upon it.

How do you slow down utilization without rationing health care?

INSURANCE COMPANIES:

EMPLOYER EDUCATION:

AGENCY/AGENT:

KEY ELEMENT: CDHP’S have to have KEY ELEMENT: CDHP’S have to have $$ controlled by the employee with $$ controlled by the employee with incentives/rewards to use these dollars incentives/rewards to use these dollars more effectively. NO GIMMICKS!!!!!more effectively. NO GIMMICKS!!!!!

High deductible plans center piece.High deductible plans center piece. The human nature factor.The human nature factor.

1. The insurance company keeps the premium savings with the promise that they will reduce future renewal increases.

2. The premium savings are primarily directed to the employee and are put into a claims account they own and control. (HSA’s)

3. The premium savings are primarily directed to the employer and are put into an account the employer owns, but that the employee controls and has incentive to use more wisely. (HRA’s)

True HSA PlanTraditional Pre-paid Plan

Variation 2 Variation 3

Insurance Company

Co-Insurance

Deductible

Co-pays

Deductible

Insurance Company

Deductible

Insurance Company Insurance Company

Deductible

Co-paysRxRx %

Rx Co-pays

Office Co-pays

American Community HSA PlanTraditional Pre-paid Plan

Variation 2 Variation 3

Insurance Company

Co-Insurance

Deductible

Co-pays

Deductible

Insurance Company

Deductible

Insurance Company Insurance Company

Deductible

Rx

Co-paysRx %

Rx Co-pays

Office Co-pays$500

Preventive Care

American Community Common Family PlanTraditional Pre-paid Plan

Insurance Company

Co-Insurance

Deductible

Co-pays

Deductible

Insurance Company

Single $2,700

Rx Co-pays

Office Co-pays

Insurance Company

Family $5,450

Deductible

Insurance Company

Single $2,700

Insurance Company

Family $5,450

Deductible Deductible

American Community Embedded Family Plan

$2,700 $2,700

100%

KEY INTERNAL COST KEY INTERNAL COST CONTROL FACTORSCONTROL FACTORS

Discretionary medical costs vs. Discretionary medical costs vs. societal changes and attitudes.societal changes and attitudes.

“ “Whereas once health care and health Whereas once health care and health insurance were understood as activities insurance were understood as activities related to acute injuries and illnesses, they related to acute injuries and illnesses, they have expanded to include preventive and have expanded to include preventive and mental health services, long-term care, mental health services, long-term care, complementary medicine, and the ability complementary medicine, and the ability to maintain psychological, social, spiritual, to maintain psychological, social, spiritual, and sexual performance far into the golden and sexual performance far into the golden years.”years.”

James C. Robinson, PhDJames C. Robinson, PhD

Entitlement Factor in AmericaEntitlement Factor in America

Corporations are Bottomless PitsCorporations are Bottomless Pits Unrestrained DesiresUnrestrained Desires ““Want-it-All” AttitudesWant-it-All” Attitudes

Consumers are not paying the billsConsumers are not paying the bills

No Skin in the Game!!!No Skin in the Game!!!

What it Really Costs!!!!!What it Really Costs!!!!!

Average Doctor’s Office Visit (w/tests) $250Average Doctor’s Office Visit (w/tests) $250

Average Co-Pay Average Co-Pay $10-30 $10-30

Phase Industry is Now InPhase Industry is Now In

Bringing consumers into the game Bringing consumers into the game

as educated and informed purchasers…as educated and informed purchasers…

Key To This TransitionKey To This Transition

EDUCATION !!!!!!EDUCATION !!!!!! EDUCATION !!!!!!EDUCATION !!!!!! EDUCATION !!!!!!EDUCATION !!!!!!

As consumers, the idea of people learning how to save their own money is powerful

KEY INTERNAL COST KEY INTERNAL COST CONTROL FACTORSCONTROL FACTORS

Discretionary medical costs vs. societal Discretionary medical costs vs. societal changes and attitudes.changes and attitudes.

Reigning in Rx cost explosion.Reigning in Rx cost explosion.

REIGNING IN Rx COSTS REIGNING IN Rx COSTS

Rx costs have increased from 5% of total Rx costs have increased from 5% of total claims in 1990 to over 18%.claims in 1990 to over 18%.

More money is spent on advertising Rx’s More money is spent on advertising Rx’s than on research & development.than on research & development.

Market forces and education have to be Market forces and education have to be brought into this Rx equation. brought into this Rx equation.

Can your company continue to Can your company continue to

take these projected increases take these projected increases

without changing your strategy?without changing your strategy?

Address Cost Address Cost The Employer’s OptionsThe Employer’s Options

Drop CoverageDrop Coverage Absorb the costs themselvesAbsorb the costs themselves Pass premium costs on to their Pass premium costs on to their

employeesemployees Reduce benefitsReduce benefits

or

Try a bold new approach that gives Try a bold new approach that gives

employers more control over cost employers more control over cost

while giving more choice to while giving more choice to employeesemployees

SOLUTION:

GETTING BACK TO RISKED BASED

INSURANCE

$0 $0 0.020 0.080 -$ -$ 2,100.00$ 168.00$ 0-1,000 600 0.190 0.275 114.00$ 165.00$ 1,500.00$ 413.00$

1,000-2,000 1,500 0.150 0.240 225.00$ 360.00$ 600.00$ 144.00$ 2,000-3,000 2,500 0.130 0.100 325.00$ 250.00$ -$ -$ 3,000-4,000 3,400 0.100 0.040 340.00$ 136.00$ -$ -$ 4,000-5,000 4,400 0.085 0.040 374.00$ 176.00$ -$ -$ 5,000-7,500 6,000 0.104 0.055 624.00$ 330.00$ -$ -$ 7,500-10,000 8,500 0.080 0.045 680.00$ 383.00$ -$ -$ 10,000-15,000 12,000 0.070 0.056 840.00$ 672.00$ -$ -$ 15,000-25,000 19,000 0.046 0.044 874.00$ 836.00$ -$ -$

25,000 + 60,000 (59,000) 0.025 0.025 1,500.00$ 1,475.00$ -$ -$

1.000 1.000 5,896.00$ 4,783.00$ n/a 725.00$ 5,083.00$ 2,945.00$

This table suggests that 74% of all claims submitted fall under the family deductible of $3,500 and are neverrecorded against the actual insurance policy. Furthermore, a significant amount of claims formerly above $3,500especially those of $10,000 or less could be either below the $3,500 deductible or reduced after the HSA is introduced. Even some claims above $10,000 might be reduced to a lesser degree. For claims above $15,000 onlya small reduction, if any, is expected. Some reductions in inpatient hospitalizations may occur, but a reductionin outpatient utilization is more likely.

TotalClaims Cost for Insurance Policy

Range of Annual Cost per Family Average Cost

Probability

Before HSA

After HSA HSA Balance

HSA Cost

Cost in Range

Before HSA After HSA

Milliman & Robertson, Inc.

THREE LITMUS TESTS THREE LITMUS TESTS FOR CDHP’sFOR CDHP’s How does your plan design treat How does your plan design treat

employees with catastrophic or chronic employees with catastrophic or chronic conditions?conditions?

THREE LITMUS TESTS THREE LITMUS TESTS FOR CDHP’sFOR CDHP’s How does your plan design treat How does your plan design treat

employees with catastrophic or chronic employees with catastrophic or chronic conditions?conditions?

How does it treat the 55+% of employees How does it treat the 55+% of employees who spend less than $1,000 per year?who spend less than $1,000 per year?

THREE LITMUS TESTS THREE LITMUS TESTS FOR CDHP’sFOR CDHP’s How does your plan design treat How does your plan design treat

employees with catastrophic or chronic employees with catastrophic or chronic conditions?conditions?

How does it treat the 55How does it treat the 55++% of employees % of employees who spend less than $1,000 per year?who spend less than $1,000 per year?

How does it curb the abuser/user?How does it curb the abuser/user?

HOW IT WORKS:HOW IT WORKS:

100%PREMIUM

$

$Use 60% of premium

to pay forCatastrophic Insurance

90% Rx, treatments, surgeryHospital, doctor,

lab tests

$250 deductible

Rx $10/$20/$35 co-pay

ER $75 co-pay

Office Visit $20 co-pay

100%Rx, treatments, surgery

Hospital, doctor, lab testsNO CO-PAYS

$2,000/$2,250/$2,500 Deductible

Fund actual claims under deductibleRx, treatments, surgery

Hospital, doctor, lab tests

HRA REDUCED PREMIUM HRA BENEFIT DESIGN $5 MILLION

How does the HRA concept work?

10%$1,000Out-of-pocket

PPO PREMIUM PPO BENEFIT DESIGN $5 MILLION

Owner’s choicewhen used

REDUCED

BY

40%

Unused premiums are retained in

your checking account$___________Out-of-pocket

Most Expensive of Health Care Designs Most Expensive of Health Care Designs are called “Prepaid Medical”are called “Prepaid Medical” PlansPlans

1. Deductible1. Deductible

2. Office Co-Pays2. Office Co-Pays

3. Co-Insurance3. Co-Insurance

4. RX Cards 4. RX Cards

5. Typical Out of Pocket5. Typical Out of Pocket

Dollars

100% PREMIUM $ Surgery Hospitalization Office co-pays ER co-pays Treatments X-rays Lab Tests Specialists Rx co-pays Large Claims

Small Claims

Use 60% of premium $to pay for

Catastrophic Insurance

90% Rx, treatments, surgeryHospital, doctor, lab tests

10% out-of-pocket

$250 deductible

Rx $10/$30/$50 co-pay

ER $75 co-pay

Office Visit $20 co-pay

100%Rx, treatments, surgery

Hospital, doctor, lab testsNO CO-PAYS

$2500/$5,000 Deductible

Fund actual claims under deductibleRx, treatments, surgery

hospital, doctor, lab testsetc.

HRA Reduced Premium HRA

How does the HRA concept work?Pre-Paid PPO Premium PPO Benefit Design

REDUCED

BY

40%

Unused premiums are retained in

your checking accountOwner’s choice when used

Why do we have health insurance?

Most people can’t afford to write a check for

$50,000 - $100,000 - $1,000,000

Those covered never see the actual cost

of their health care

Most don’t care...as long as they’re covered

Facts

You only pay for what you use

Remaining unused HRA funds at the end of each year roll over

and are retained in your checking account.

INSURED NEVER SEES THE ACTUAL COSTS OF

TREATMENTS,OFFICE VISITS, AND

PRESCRIPTION DRUGS

Employer Can Decide Design. Pay same Claims, Employer Can Decide Design. Pay same Claims, BUT in a Different MannerBUT in a Different Manner

HSAHRA

Dollars

EmployeeDollars

Insurance

Employer Dollars

1. Premium Savings2. Tax Savings3. Key Point – Claims

Paid when used.

BOTTOM LINE… ON AVERAGE, COMPANY WILL SAVE BETWEEN $1,000 TO $3,000 PER PERSON PER YEAR.

G & G MFG Renewal 11-01-2008G & G MFG Renewal 11-01-2008

CarrierCarrier AC PreviousAC Previous $141.25$141.25 $353.14$353.14 $277.19$277.19 $494.39$494.39

AC RenewalAC Renewal $151.14$151.14 $377.86$377.86 $302.28$302.28 $529.00$529.00

AetnaAetna $240.00$240.00 $457.00$457.00 $404.00$404.00 $662.00$662.00

Blue CrossBlue Cross $296.14$296.14 $666.32$666.32 $666.32$666.32 $799.58$799.58

HumanaHumana Declined to quote – rates not competitive Declined to quote – rates not competitive

PhysiciansCarePhysiciansCare $215.17$215.17 $418.19$418.19 $379.32$379.32 $647.07$647.07

StarmarkStarmark $174.31$174.31 $401.49$401.49 $343.76$343.76 $570.94$570.94

UnicareUnicare $170.91$170.91 $396.60$396.60 $396.60$396.60 $506.53$506.53

With your Starmark traditional plan, you would have spent With your Starmark traditional plan, you would have spent $78.458.76 $78.458.76 on premiums for 2008on premiums for 2008 With your American Community HRA, you have spentWith your American Community HRA, you have spent $44,070.72 $44,070.72 on premiums for 2008on premiums for 2008 You have saved You have saved $34,388.04 $34,388.04 on premium over the past 12 monthson premium over the past 12 months Your employees utilized 13,000 in HRA reimbursements through your renewal date.Your employees utilized 13,000 in HRA reimbursements through your renewal date. That means you have kept overThat means you have kept over $21,000 $21,000 in your checking account during your first year of your HRAin your checking account during your first year of your HRA Your 7% renewal increase amounts toYour 7% renewal increase amounts to $3,084.95 $3,084.95. With your Starmark plan, this 7%% increase would . With your Starmark plan, this 7%% increase would

have amounted to have amounted to $5,492.11$5,492.11. . Your Starmark renewal premium would have been Your Starmark renewal premium would have been $83.950.87$83.950.87 Your American Community HRA plan renewal is Your American Community HRA plan renewal is $47,155.67$47,155.67 That’s an additional savings of That’s an additional savings of $3,679.52$3,679.52

This brings your actual total annual savings for your first year to over This brings your actual total annual savings for your first year to over $24,679.00$24,679.00

SOME FUTURE ISSUESSOME FUTURE ISSUES

Cost Shifting by the Government!!!Cost Shifting by the Government!!! Reducing Rx Costs.Reducing Rx Costs. Tort Reform.Tort Reform. Flexibility on State Mandates.Flexibility on State Mandates.

How Do You Start This How Do You Start This Educational ProcessEducational Process

Contact

Livio Andreatta, ACBC, CSALivio Andreatta, ACBC, CSAL. L. Andreatta & AssociatesL. L. Andreatta & Associates

Illinois Office: (708) 647-9353Illinois Office: (708) 647-9353

Michigan Office (269) 928-2901Michigan Office (269) 928-2901

Cell: (708) 932-5167 Cell: (708) 932-5167

e-mail: [email protected]: [email protected]